Calling out Goofy @CRE and the rest of Wall Street Oasis. Real Estate is the worst asset class going forward.

editing this to apologize to wall street oasis. I lost. I'm wrong. I did not mean to rile up this message board. @CRE , you are not goofy, you are mature!

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Comments (62)

Best Response
Jul 8, 2017

Go short a bunch of retail and office REITs and prove yourself right. Tell us how that works out for you.

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Jul 8, 2017

i laughed pretty hard at this +1 SB

Jul 9, 2017

Not a valid point. Going long or short on investment securities has little to do with 20+ year industry estimates. Even if the OP is 1000% right about real estate's coming collapse, that doesn't mean shorting REITs makes sense--you could easily see a huge run-up of the stock price in the short-term, making the short seller vulnerable to a Margin Call.

Jul 10, 2017

It is a valid point. All he has to do is hold his position like Bill Ackman did with MBIA and collect on his earnings when all CRE has disappeared from the face of the Earth and the only existing real estate left are fetal pods from which the Matrix exploits our bodies for energy. So long as he swallows the red pill offered by Morpheus to see how deep the rabbit hole goes, he will be the Sam Zell of our dystopian future.

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Jul 10, 2017

No, it's not. You completely ignored the principle of "Margin Call"--this is the same issue that was dealt with in the movie The Big Short where the real estate market's short sellers were pressured by the short-term loss in value of their positions (as in, their positions were going to be forcibly closed by the brokerage house). You can be 100% correct about a call 30 years in advance, but short-selling is all about timing, which is why long-term short positions usually make no sense (as short-term counter movements can f*ck you).

Jul 10, 2017

The Joke and You

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Jul 10, 2017

Bullshit. You're making fun of the OP's long-term predictions and challenging him to short REITs if he's so certain about his position.

The reality is, you were called out for not understanding a financial basic and now you're trying to pass it off as a joke.

Jul 10, 2017
Dances with Dachshunds:

No, it's not. You completely ignored the principle of "Margin Call"--this is the same issue that was dealt with in the movie The Big Short where the real estate market's short sellers were pressured by the short-term loss in value of their positions (as in, their positions were going to be forcibly closed by the brokerage house). You can be 100% correct about a call 30 years in advance, but short-selling is all about timing, which is why long-term short positions usually make no sense (as short-term counter movements can f*ck you).

There's a more elegant way to do it. Long everything BUT real estate. Short accomplished

Jul 10, 2017

LOL. Not really.

Jul 11, 2017

I'm giving OP an avenue by which to express his thesis, which you so vigorously defended a couple posts ago chief. If you're thinking of shorting in the most literal sense, then yes, shorting REITs is a brutal proposition NOT because of margin calls like you say - it's having to fund the dividends that will grind you down, and I know that because I've done it before. But when your opportunity set is global and your time-span is 30 years, there are other ways to get negative exposure with different orders of magnitude. Try to be open minded. But let's flip this - why are you telling OP that there is no way he can successfully express his thesis? Dick move. I'm interested because I would love to find a way to hedge my real estate exposure over the long term, without liquidating assets

Jul 14, 2017

1) You're demonstrably wrong that Margin Call isn't an issue--it absolutely is. That you would deny that is literally absurd. 2) Your proposition doesn't actually provide negative exposure to real estate, that's what I'm saying, because that denies correlation coefficients. I would assume, for example, real estate generally moves with the bond market.

Jul 14, 2017
Dances with Dachshunds:

That you would deny that is literally absurd.

Guys I'm so crazy watch out!! Never know what crazy thing I'm going to say next!

Sure, Margin Call is a consideration. I'll give you that. But when the weighted average dividend yield (for the 83 REITs in Green Street's coverage universe, which I think is a sufficient proxy for the REIT universe here) is 3.65% - tell me, you think yield compression is going to jack REIT prices up and blow you out first? Or funding dividends quarterly WITH CASH, year after year after year

And I think you're thinking about exposure in the most literal sense. You do understand the concept of relative performance, right?

Jul 14, 2017
Lizard Brain:
Dances with Dachshunds:

That you would deny that is literally absurd.

Guys I'm so crazy watch out!! Never know what crazy thing I'm going to say next!

Sure, Margin Call is a consideration. I'll give you that. But when the weighted average dividend yield (for the 83 REITs in Green Street's coverage universe, which I think is a sufficient proxy for the REIT universe here) is 3.65% - tell me, you think yield compression is going to jack REIT prices up and blow you out first? Or funding dividends quarterly WITH CASH, year after year after year

And I think you're thinking about exposure in the most literal sense. You do understand the concept of relative performance, right?

If you had a 30-year view on REITs 5 years ago and tried shorting them, your position would have already been closed out based solely on share appreciation. If you wanted to short REITs long-term and were worried about dividends, you could buy the top performing REITs (AVB, Public Storage, etc.) with ~3% or lower dividend yields and pay for the dividends out of 20- or 30-year T-bond yields (your other investments, which you would happily do if you believed the REIT class would collapse). Relative to share appreciation, dividend yields in the REIT class are manageable.

Again, buying the "total market" of all assets to take a position against real estate is asinine because there are a ton of industries and assets that have correlated returns with real estate--construction and bonds, just to name a few. And bonds, for example, is a pretty f*cking big asset class. You're basically saying that I'm shorting gold by buying Apple stock. That's an asinine position.

Jul 14, 2017
Dances with Dachshunds:

If you had a 30-year view on REITs 5 years ago and tried shorting them, your position would have already been closed out based solely on share appreciation.

Of course entry matters but you're cherry picking. Sure, we'd be having a very different conversation about this 5 years ago. We'd also be having a different conversation about this on 1/1/2007, in fact margin on his short at that entry wouldn't have been an issue through today. So tell me which scenario do you think we're closer to today?

Dances with Dachshunds:

and pay for the dividends out of 20- or 30-year T-bond yields (your other investments, which you would happily do if you believed the REIT class would collapse)

Because holding a T bond portfolio is a super simple fix that doesn't introduce any other considerations or risks? So your solution involves saddling up with some serious duration, and you're probably going to do it with leverage, and the notional on your bond position is going to be larger than that of your REIT short. You're assuming they're really well correlated, which they really aren't by causation. Picture an inflationary scenario. Your bond position is going to get trashed while REIT performance should be mixed in the medium term - hotel and multifamily are pretty well inflation hedged and the whole REIT complex will benefit from debt being discounted. And you're long bonds and short real estate in that scenario? Oh and the REIT dividends that you're having to fund are also growing because of inflation? Dude I would hate to be holding that bag but let me know how it works out for you

Dances with Dachshunds:

You're basically saying that I'm shorting gold by buying Apple stock.

Okay that's one very diluted example. Here's another one - let's say you're a diversified equity manager and you were completely out of financials from 2007 through 2008? You would have been a f*cking g

Jul 14, 2017
Lizard Brain:

Of course entry matters but you're cherry picking. Sure, we'd be having a very different conversation about this 5 years ago. We'd also be having a different conversation about this on 1/1/2007, in fact margin on his short at that entry wouldn't have been an issue through today.

What exactly are you arguing? You're literally backing up my argument that the idea of short-selling REITs on a 30-year time frame is absurd. Your only point of contention with me is that dividend yield is the bigger issue than Margin Call. I disagree and laid out my reasoning why--REITs have been appreciating at double-digit rates, which would force a margin call if that continued in the short-term, and you could easily pay low dividend yields with T-Bond returns. Nevertheless, it makes zero difference--you're actually agreeing with me that short-selling REITs long-term is asinine. You're arguing over nothing.

Lizard Brain:

Because holding a T bond portfolio is a super simple fix that doesn't introduce any other considerations or risks?

Duration risk doesn't exist if you don't sell. We're talking about a 30-year short-sell strategy, which is dumb and no one would do unless they had a time machine.

Lizard Brain:

Okay that's one very diluted example. Here's another one - let's say you're a diversified equity manager and you were completely out of financials from 2007 through 2008? You would have been a f*cking g

Not investing in an asset class is not the same thing as short-selling. Liquidating your stock and going all cash in 2007 is NOT the same thing as short-selling the NASDAQ. Do I really need to explain this to you?

Jul 14, 2017

[Double post]

Jul 14, 2017
Dances with Dachshunds:

REITs have been appreciating at double-digit rates

You really think that's going to continue? 30 years ago this industry was a backwater. From here on out, growth is going to be from 1) Accretive acquisitions, which are only getting harder since everyone and his mother now knows how to slap a 5 cap on his podunk property that he bought before written history, and 2) rent growth, which cannot outpace growth of the economy indefinitely

Dances with Dachshunds:

Duration risk doesn't exist if you don't sell

Mismatch between T bond coupon and dividend funding as dividends grow in your portfolio scheme tanks it

Dances with Dachshunds:

Not investing in an asset class is not the same thing as short-selling. Liquidating your stock and going all cash in 2007 is NOT the same thing as short-selling the NASDAQ. Do I really need to explain this to you?

Dude don't patronize me. Of course short selling is mechanically different from absence of ownership but I'm arguing for the merit of the latter in the face of inability to execute on the former.

Anyway if you want to settle our differences in person, we can grab drinks whenever you're in NY, but I'm hanging this up for now. We're running in circles. And in response to any snarky comebacks - god bless and have a great weekend

Jul 14, 2017
Lizard Brain:

REITs have been appreciating at double-digit rates
You really think that's going to continue? 30 years ago this industry was a backwater. From here on out, growth is going to be from 1) Accretive acquisitions, which are only getting harder since everyone and his mother now knows how to slap a 5 cap on his podunk property that he bought before written history, and 2) rent growth, which cannot outpace growth of the economy indefinitely

I'm literally not arguing this at all. All I'm saying is that Margin Call is at least reason 1b for not short-selling on a 30-year basis. Maybe you're right that dividends are reason 1a not to short-sell, I don't know. It doesn't matter--my point remains that no one would short-sell anything for 30 years. The specific arguments about which is the worst reason to short-sell is academic.

Lizard Brain:

Dude don't patronize me. Of course short selling is mechanically different from absence of ownership but I'm arguing for the merit of the latter in the face of inability to execute on the former.

But we ARE talking about short-selling or creating a synthetic investment that does the same. There is no reasonable way to do that on a 30-year basis. I think that much we agree on.

Jul 14, 2017

@Dances with Dachshunds" why did you change your name from VirginiaTech? I was wondering what happened to you and then I saw this response and knew it had to be the same person. Your post history confirms that too. Change of heart?

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Jul 14, 2017
picklemonkey:

@Dances with Dachshunds why did you change your name from VirginiaTech? I was wondering what happened to you and then I saw this response and knew it had to be the same person. Your post history confirms that too. Change of heart?

Started losing faith in my alma mater as the administration and student body organizations have followed the common progression of the last decade--lurching far to the intolerant, fascist left. I don't even recognize VT anymore, to be frank.

Jul 14, 2017

You're surprised colleges and college students are left to far-left? That's pretty par for the course.

Jul 18, 2017
CRE:

You're surprised colleges and college students are left to far-left? That's pretty par for the course.

My alma mater when I was there had resisted the far left intellectual fascism, but in the last few years new administrators have put us on the path of Berkeley (actually, our new president is from Berkeley, so little surprise there).

And it's really only in the last 10 years that the left's fascism has reared its ugly head. That's why people distinguish between liberal Democrats and the Left--liberal Democrats are not fascists; the Left is.

Jul 18, 2017

lol yuh, it's weird when 19 year olds are conservative, kind of like a Mercedes with a bike rack and a bumper sticker.

Jul 18, 2017
UFOinsider:

lol yuh, it's weird when 19 year olds are conservative, kind of like a Mercedes with a bike rack and a bumper sticker.

It's not about the students at large--it's about the faculty and administration and the fringe student activists.

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Jul 8, 2017

Do you have nothing else to do but to rant on WSO all day and call out rather contributing and productive members of our site who now have to write a response to you instead of actually helping others out? Non-targets sure do have a lot of time on their hands.

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Jul 8, 2017
jewintoronto:

Do you have nothing else to do but to rant on WSO all day and call out rather contributing and productive members of our site who now have to write a response to you instead of actually helping others out? Non-targets sure do have a lot of time on their hands.

Tell me how I'm wrong.

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Jul 8, 2017

Sorry do not have a background in RE so I can't comment on your actual post. Though you seem to have a hardon on @CRE. Are you a stan?

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Jul 8, 2017

Land is finite. Do you understand this?

Jul 9, 2017
cpgame:

Land is finite. Do you understand this?

Nice. Completely avoided all of my points. :)

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Jul 9, 2017

If we had a crystal ball we would bet on it. You're basically saying BX is going bankrupt? Frankly 30 years is such an incredibly long time to forecast that many industries will be completely transformed by then. I would suggest shorting all REITs if that is your stance, and would be willing to bet many will take the other side of that trade.

Jul 9, 2017

You would fit in really well with the guys over at www.reddit.com/r/wallstreetbets.

Jul 9, 2017

That's disrespectful to r/wsb, even the autists there aren't that retarded,

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Jul 9, 2017

You guys I think he's got a point. Most buildings as we know them today will be obsolete. Instead everyone will just spend 22 hours a day in economical 10x10 cubes with screens for walls experiencing life almost exclusively through VR because what is more efficient than that? Outside of that, it will just be a sea of warehouses and self driving cars ferrying people to and from entertainment venues and surgical procedures.

All real estate will be approaching value parity because let's face it, it's just a bunch of useless dirt at that point. Manhattan, NYC will be the same price as Manhattan, KS, as long as they both have their all-purpose living cubes wired for terabyte wifi.

What a bonehead

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Jul 9, 2017

Funny thing is the OP previously started a thread about working at Eastdil awhile back. I'm guessing that didn't work out for him...

Jul 9, 2017
NealCaffrey:

You guys I think he's got a point. Most buildings as we know them today will be obsolete. Instead everyone will just spend 22 hours a day in economical 10x10 cubes with screens for walls experiencing life almost exclusively through VR because what is more efficient than that? Outside of that, it will just be a sea of warehouses and self driving cars ferrying people to and from entertainment venues and surgical procedures.

All real estate will be approaching value parity because let's face it, it's just a bunch of useless dirt at that point. Manhattan, NYC will be the same price as Manhattan, KS, as long as they both have their all-purpose living cubes wired for terabyte wifi.

What a bonehead

Your point is really about timing. The dystopian future you lay out (tongue-in-cheek, of course) is likely to happen, given enough time.

Jul 10, 2017

This is why I am cornering the shipping container market.

Jul 9, 2017

Reading angry wso posts is my hobby.

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Jul 9, 2017

This is amusing. Unfortunately, I'm heading to the Caribbean today and can't respond. Until next time, @kmkmkmoo

-"Goofus" CRE

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Jul 9, 2017
CRE:

This is amusing. Unfortunately, I'm heading to the Caribbean today and can't respond. Until next time, @kmkmkmoo

-"Goofus" CRE

So someone who just got a new job in a new field a couple months ago is heading out on vacation already? Lol.

You're so goofy!

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Jul 9, 2017

How do you know he isn't there on work? Contrary to popular belief people actually live in the Caribbean.

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Jul 14, 2017

100% paid for by the company too.

There are places out there that aren't sweatshops. Find them.

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Jul 9, 2017

In 3 years you will be a twink to a much older sugar daddy. Prove me wrong, goofus. Oh that's right, you can't :)

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Jul 9, 2017

It's not real until you short it

Jul 9, 2017

Not a single person here can refute it. Not a single one has tried to challenge one of my points, including goofy @CRE . :)

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Jul 9, 2017

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Jul 10, 2017

1. Malls and retail stores are dying.
As CRE said, malls are either being redeveloped to support non-traditional tenants or mixed-use town centers. A quick google search shows plenty of examples and case studies of successful mall redevelopment projects. Malls in suburban areas that are rapidly dying will more than likely die along with the communities, and that is just the market correcting for consumer tastes as more people demand the option of urban living and leave the suburbs. This isn't the stock market where there is going to be a meltdown over the course of 24 hours. The changes are happening slowly, and the industry is adapting alongside. Even so, industrial seems to be booming as retail is withering. If changing consumer tastes causes certain types of assets (class B retail) in sub-par locations to lose value due to excess supply, than so be it, but a freshman in college can use basic economics to show the shifted demand curve will just lead to lower prices (lower values) and lower supply (less retail being built and more redevelopment) until equilibrium is reached. Once equilibrium is reached supply will probably either stay the same or continue to shrink until prices increase to make it feasible to build/redevelop retail again. Like I said above, this isn't happening over night, and it isn't going to be an overnight price crash. It is just as likely that Apple is worthless in 30 years than it is that retail is worthless.

2. Automation/AI, outsourcing, and virtual work stations will murder office space
While automation/AI will have an effect on many industries, I'm not entirely convinced it is going to displace a large portion of white collar workers within the next 30 years. If you look at exhibit 3 in this study done by McKinsey, almost all of the jobs at the bottom of the list are white collar. According to the study, almost one-third of all time spent in the workplace involves data collection which will more than likely eventually be automated (thank god), but almost all white collar jobs involve activities that will not be easily automated such as managing others, stakeholder interactions, and apply expertise. If anything, AI will make white collar workers able to allocate more time to value creating endeavors and spend less time doing bullshit such as data collection. I believe AI/automation will have little to no effect on the value of offices in the next 30 years unless we create sentient artificial intelligence that can truly replace people.

Second, if a large portion of white collar jobs were outsourced wouldn't that just shift the asset values to other countries where there would be increased demand and therefore values? From a global perspective, that would hardly cause real estate to become worthless; if anything it will have a positive impact on real estate values as labor/materials are typically cheaper in those countries.

Virtual work stations -- come on man...this isn't even an argument. It could potentially have a slight effect on the demand for office space, but you're completely forgetting about the human factor that comes from working face-to-face on a team, and the positive effects it has on productivity. In the unlikely event that it starts to have a major impact, RE prices will adjust so that the supply/demand curves are at back at equilibrium and it is more cost effective to have people in the office. My mother works in HR where she hires people to work virtually and there is so many problems with it that it is laughable. A significant amount of people drinking/doing drugs while working, watching porn, trying to scheme the system so that they don't have to actually work, using company computers for illegal activities, lack of team cohesiveness that effects professionalism and productivity, etc. There is no way that virtual work stations will ever replace offices. We are social animals -- we aren't all on the spectrum and belong in a think tank. It will work for some industries, many which have already adopted the practice (hospitality, tech/IT, customer service), but for the vast majority it won't.

3. Netflix, amazon groceries, virtual medicine will also deplete RE demand (cinemas disappear, less grocery stores, virtual medicine replaces general doctor offices)

Okay, I could see amazon groceries having a major impact on grocery stores as nobody likes grocery shopping, but grocery stores are adapting by allowing people to order online and pick up their groceries for free. I did this today using Walmart. Ordered my groceries online yesterday, then drove to the store this morning and sat there while they loaded up my car. Took about 10 minutes. The way theaters/movie producers price movie tickets is fucky and there is plenty of room of improvement to attract patrons if they lose market share to streaming services. On opening weeks, movie producers get as much as 100% of ticket sales from theater owners, and unless the cost of streaming subscriptions increases substantially there is no way that they would be able to afford bypassing theaters to provide AAA movies to their subscribers on opening day given the way the economics of the movie industry currently works. As of the end of FY2016, Netflix has 3.6 Billion dollars in current content liabilities, while worldwide annual ticket sales were 11.2 billion. Also annual ticket sales have pretty much remained materially unchanged since 1995. So yea... sorry, Netflix isn't going to replace the box office anytime soon.

Virtual medicine isn't going to kill general doctor offices.

TL:DR The real estate market isn't the stock market where supply/demand/pricing changes happen overnight. The industry will adapt as consumer tastes/technology changes our society. The effects of AI/automation on white collar jobs will get rid of bullshit data collection work, but probably won't displace most workers. Not everyone is an antisocial autist that wants to work and play at home.

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Jul 10, 2017

IDK I like grocery shopping--at least when I'm going for fresh fruits/vegetables. I like to be able to pick out which one I'm gonna buy, and I think most people do too. Maybe less for packaged goods (where I am liable to use Amazon already) but I can't see delivery fresh produce being a successful model (unless they have an in-the-moment selection you can pick from, but that would eliminate some of the efficiencies of the idea).

Otherwise, excellent +1 SB

University of Chicago

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Jul 10, 2017

If you call after placing the order apparently you can tell Walmart how you like your produce (green bananas, ripe tomatoes, etc.) I'm sure it is hit or miss though depending on who actually picks out the stuff.

Jul 10, 2017

Huh, didn't know that. Still I'd like to pick it myself but I guess if I was in a hurry it would work...

University of Chicago

Jul 9, 2017

So basically the entire premise of your theory is that because there is a surplus of shitty regional malls in suburban Ohio, this devalues the real estate in Manhattan? Cool story bro. Hilarious theory from someone who clearly doesn't understand the most basic factor of real estate value.

P.S. Where do you get your bath salts?

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Jul 10, 2017

I have a guy, PM me

Jul 10, 2017

This is a RE forum and I am an avid defender of the industry. With that being said, OP, you keep saying none of us can defend our viewpoints, but technically neither can you. Nobody knows the future. 30 years is a long time and the world is evolving very quickly.

30 years ago, Apple was a crap company with little value

30 years ago, Sears and Kodak were in the Dow Jones.

Forget about 30 years, just 15 years ago AOL was pretty much the largest internet company. Everyone was using those AOL cds.

You remember askjeeves. Well turns out Google murdered Mr. Jeeves.

Seemed like just 15 years ago, everyone had a Yahoo email account.

Facebook, a company that started in 2004, now has more than 2 billion users.

Your argument is that innovation will cause a decrease in demand in RE. Maybe your right, maybe your wrong.

However, if you believe innovation will do this, then RE won't be the only industry hit and it certainly won't be first.

Innovation will cause greater adoption of machinery produced goods and services. So by your logic everyone will be laid off. This could mean McDonald's will have robots serving you.

Innovation will cause medical advances thus resulting in the decline of the healthcare industry.

Innovation will cause the hyperloop to be built, so no more cars will be sold. So anything related to the auto industry will be bankrupt.

So these are examples of the doomsday scenario you believe are true. You say RE will be dead due to innovation, but in order for that to occur the industry in which that tenant operates must actually die off first. RE houses humans and businesses. In order for RE to fail, humans must die off and all the businesses in the world must go bankrupt.

Jul 10, 2017

Perhaps a lot of this space can be reverted back to tillable ground in some instances to help feed a growing world. Plus as wealth increases people like to eat more meat which is inefficient to produce from an acreage perspective.

I don't know that test tube produced meat will be an easy sell for quite some time. Eating insects is a perfectly natural source of protein and the typical US consumer will not encourage roach infestations of their property to "local source" their groceries. So you need land.

Jul 10, 2017
Big4please:

Perhaps a lot of this space can be reverted back to tillable ground in some instances to help feed a growing world. Plus as wealth increases people like to eat more meat which is inefficient to produce from an acreage perspective.

I don't know that test tube produced meat will be an easy sell for quite some time. Eating insects is a perfectly natural source of protein and the typical US consumer will not encourage roach infestations of their property to "local source" their groceries. So you need land.

I definitely think lab grown meat is the wave of the future, but it definitely needs a re-branding of sorts away from "lab grown meat."

Jul 10, 2017

Wall street oasis is so goofy!

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Jul 10, 2017

Jul 10, 2017

It's even more funny considering OP's history of asking about hedge fund recruiting opportunities when the whole industry is getting backhanded by smart beta funds. Wasn't his #2 about automation?

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Jul 11, 2017

The name of this post reminds me of when Kim Jong-Un kept referring to HRC as "Dull Hillary".

Jul 11, 2017
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Jul 14, 2017
Jul 14, 2017